I've been flashing CyanogenMod 9 nightlies for months now, and the process to do so has become pretty much muscle memory at this point (if cwm ever changes its menu order I'm screwed). One step of this process has always fascinated me simply because I have no idea what exactly it does and why I have to do it: clearing Dalvik cache.

Well, I guess it depends on what you're running. When you update (to) a CM9 rom you'll notice that at the first boot Android is rebuilding the cache for all applications. THAT's the Dalvik cache rebuilding afaik.

So it seems we are all right. Yes, the Dalvik cache needs to be rebuilt, but you don't have to manually wipe it.